This study evaluated the role of promoters’ ownership in the price discovery process of initial public offerings (IPO) of Indian firms. This linkage is centrally important due to the regulatory constraint imposed by the equity market regulator in defining the minimum ownership stake of promoters. The study revealed that promoters’ ownership stake is not relevant in determining the listing day return of Indian IPO. This supports the efficacy of regulatory framework as an attempt to reduce the degree of IPO underpricing by regulating promoters’ ownership stake. The study is extended to identify the reasons for Indian firms to go public and revealed that Indian firms go public to satisfy its capital need, to obtain the liquidity for promoters’ funds and to retire the debt from pre IPO stage. The study contributes to the existing literature by identifying the reasons for Indian firms to go public.
IPO underpricing, Lock-in period, Signaling Hypothesis